Back from a break and catching up on the news, I see that, after "a successful sales pilot," the Artist Pension Trust has made its first distributions to artists. Well, no one is retiring on these distributions, though overall it remains too soon to tell. Some background here.

Bloomberg reports that the auction houses are now paying fixed fees to third-party guarantors. The Art Market Monitor calls the story "laughable nonsense": "The guarantee is a kind of loan and the guarantor deserves to be paid interest for making it."

UPDATE: Felix Salmon: "This is not manipulation, it’s transparency, and a welcome development."

Thursday, June 09, 2016

An interesting Ninth Circuit VARA decision that turns into a debate about the meaning of "applied art" (because applied art is an exception to VARA; if it's applied art, it's not protected).

The case involves La Contessa, "a used school bus transformed into a mobile replica of a 16th-century Spanish galleon" for use at the Burning Man festival for several years, and then destroyed.

The majority opinion wants a relatively objective test: "the focus of our inquiry should be on whether the object in question originally was—and continues to be—utilitarian in nature." If the object "initially served a utilitarian function" and "continues to serve such a function" even after the artist transforms it, then it's applied art (and therefore not protected by VARA). The majority wants judges to (and this is relevant, I think, to the fair use/appropriation debate) stay out of the business of making aesthetic judgments: the alternative proposed by the concurring judge -- to ask whether a work is primarily directed to a practical purpose -- would "necessarily require[] courts to express judgments regarding the importance of an object’s artistic qualities," and "how different judges could answer such a question on a consistent basis is anything but clear."

The concurrence calls for a "more textured and flexible definition." VARA's protections "cannot be limited only to works entirely devoid of any utilitarian purpose. ... Many outstanding sculptures, including the Caryatids of the Acropolis and the monumental carvings of Ramses at the temple of Karnak are in fact columns that provided buildings with structural integrity. Medieval tapestries not only represented a form of fine art, but also kept castles and cathedrals free from draft." "To effect the purpose of VARA and provide guidance for the
art community, I believe courts should evaluate the work as a whole, asking
whether its primary purpose is to serve a useful function and whether the
artistic creation is subservient to that purpose. If the primary purpose is for
the work to be viewed and perceived as art, then any incidental utilitarian
function will not push it outside the scope of VARA."

I score this round for the concurrence.

Eileen Kinsella has a good write-up at artnet. Courthouse News Service here.

Friday, June 03, 2016

Daniel Grant had a piece in the Weekly Standard a week or two ago arguing, generally, that "philanthropy is not a tax proposition" and, more specifically, against proposals for restoring the income tax deduction for donations by artists (as opposed to collectors). In general I disagree with Grant's take on this -- I think any time you make something more expensive (which is what happens to donations of art when you reduce the accompanying tax deduction), you get less of it. But there are two, more narrow points I want to make here:

1. The piece is critical of Ralph Lerner for telling the New York Times right after the Pension Protection Act was passed in 2006 that it would be "the death of fractional gifts." As Grant points out, fractional gifts "didn't die and continue to be a normal way that donors" structure their giving. But -- and I realize this is a long time ago and little bit inside baseball -- the initial version of the Pension Protection Act would have been the death of fractional gifts -- as a result of what I called at the time the "mismatch problem." When that problem was later fixed through technical corrections, it brought the practice back from the dead.

2. Grant says: "As a practical matter, if artists want to have the same tax deductions as non-artist donors to museums, they simply can sell their work and contribute the earnings to these public institutions." That's not the case. Here's why.

If a collector donates a work to a museum, he reduces his taxable income by the fair market value of the work – a net positive. Say he has a million dollars in income and the work is worth $100,000. He now pays tax on only $900,000.

But if an artist in the same situation sells the work and contributes the earnings, he now has $1.1 million in income and a $100,000 tax deduction – so he pays tax on a million dollars. The same as he would have had he not made the donation. It’s a wash. He’s given up the work but it’s done nothing for him tax-wise.

As I've said before, my view is that, while some of these may not look so great right in this moment, if you take a longer term view, the benefits outweigh the costs.

UPDATE: The Nonprofit Law Prof Blog: "Inquiries of this type bother me somewhat. It seems to me that current law regarding private benefit is probably sufficient to handle many of the perceived abuses .... The drumbeat of the articles and the Senate inquiry may lead to additional regulation - and I suspect they will use a mallet rather than a surgical instrument to deal with the issue, if history is any guide."